After months of wrangling, the European Supply Chain Act was unexpectedly adopted by EU member states in Brussels on Friday, March 15, 2024. The aim of the law is to improve the protection of the environment and human rights in the EU and worldwide. Under the EU Supply Chain Directive, large companies are required to ensure compliance with human rights and environmental protection standards throughout the entire supply chain in their commercial relationships and to document this compliance.
The EU Supply Chain Act offers an opportunity to bring greater transparency to food production as well, since both the food and agricultural sectors are equally affected. Companies are expected to monitor and improve their performance regarding issues such as child labor, worker exploitation, safe working conditions, biodiversity loss, and environmental pollution. In the event of non-compliance, companies could face penalties based on their global net turnover, depending on their size. (Article 54)
The Supply Chain Act was finally approved by the Council of the European Union on Friday, May 24, 2024, in Brussels. It will officially enter into force on Thursday, July 25, 2024, and EU member states have two years to transpose the directive into national law.
Who is subject to the Supply Chain Directive?
The Corporate Sustainability Due Diligence Directive (CSDDD) applies to companies in the EU with 1,000 or more employees and an annual turnover of 450 million euros. (Article 30) Different implementation deadlines apply depending on the company’s size and turnover:
3-year transition period for companies with more than 5,000 employees and annual revenue exceeding 1.5 billion euros.
4-year transition period for companies with more than 3,000 employees and annual revenue of 900 million euros.
5-year transition period for companies with more than 1,000 employees and annual revenue of 450 million euros.
What does the EU Supply Chain Act mean for companies in concrete terms?
Large companies must be able to demonstrate that there is no forced or child labor anywhere along their supply chain. In addition, large companies must develop a plan to ensure that their business model and strategy are compatible with compliance with the Paris Agreement’s climate goals for limiting global warming. Otherwise, companies can be held accountable in European courts if violations occur in their supply chains.
Are small and medium-sized enterprises also affected by the EU Supply Chain Act?
The upcoming regulations affect not only large companies; SMEs and family-owned businesses must also adapt to these changes in global trade. This applies, on the one hand, if they supply large companies in sensitive industries. On the other hand, ESG factors now offer a significant competitive advantage. In light of regulatory pressure, investor expectations, and public opinion, large companies are taking a leading role in prioritizing ESG.
According to the directive, the aim is to combat harmful purchasing practices and price pressure on small-scale farmers, particularly in the sale of food. Fair prices throughout the food supply chain are intended to address power imbalances in the agricultural sector and strengthen the position of farmers.
Large food processors and retailers would have to review their purchasing practices and adopt a procurement policy that ensures living wages for their suppliers. However, the directive applies only to the largest companies with a global net turnover of over €300 million. This could benefit small businesses, which have less bargaining power. It is also intended to protect EU farmers from unfair competition and harmful practices by companies based both within and outside the EU. (Article 34a)
Transparency is essential for true sustainability, and I have been advocating for it for several decades. I am therefore delighted that the EU Supply Chain Act has been adopted. This is a wonderful opportunity that I hope will now be taken seriously, even though, unfortunately, many compromises had to be made. It is a step in the right direction.
Werner Lampert, pioneer in organic farming and sustainability
It is imperative for companies of a certain size or with a certain level of revenue to address these requirements. Those already familiar with the UN Guiding Principles have a solid foundation on which to build their efforts. Companies with little experience should quickly address the necessary adjustments, not underestimate the associated effort, and consult with experts. A transparent and traceable supply chain is a prerequisite and the best safeguard. While this traceability may pose a major challenge for many companies, the effort involved is comparable to the quality assurance measures that have been standard practice for decades.
Long before the EU Supply Chain Act was even discussed, Lampert developed a quality assurance and traceability database that enables the comprehensive collection of data throughout the value chain. The Lampert database records all relevant production steps along the supply chain, such as inspection results from control bodies, production data from processing facilities, and origin information for feed and animal feed, as well as goods movement data and quantities. The data is recorded in real time. This creates unique transparency and security.
The database has been in use for 18 years for the Back to the Roots organic products at HOFER/ALDI Süd.